Chapter 5 Traffic Management
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Chapter 5 Traffic Management
5.1 Background and Scope of Traffic Management
Background and Scope of Traffic Management
senior management concerned about traffic management because transportation is a major expense item traffic manager is an important member of management team traffic department plays a major role in accomplishing physical movement flows traffic management is essential to the attainment of logistics and firm objectives technical knowledge and specialization are required in the traffic management area
Traffic Management Department
responsible for planning, operating, controlling of transportation & related services for inbound and outbound movements assists in arranging for the transportation of goods to the customer must be mindful of the interrelationships among transportation decisions and packaging, customer service, warehousing, materials handling, and inventory decisions
Traffic Managers
assist marketing by quoting freight rates for salespeople suggesting quantity discounts selecting carriers and routes for delivery of products assist manufacturing by advising on packaging and materials handling making adequate supply of transportation when needed assist outbound shipping process by providing simplified shipping or routing guides drawing up transportation documents encouraging shipment consolidations assist purchasing by advising the costs and quality of inbound deliveries tracing and expediting lost or delayed shipments
5.2 Rate Determination and Negotiation Activities
Rate Determination and Negotiation Activities The categories for rate-associated duties are: published rate determination working with carrier classification regulatory board to publish new, usually lower classifications negotiating with a specific carrier for a contract rate to carry most of the shipper’s business. The categories are interrelated because they may all involve rates for the same shipment, and whichever category results in the lowest rate is the one utilized
Rate Determination
important to every traffic manager carrier has a legal obligation to determine the correct rate this is extremely complex and have a broad range of interpretations many applicable rates can be found from tariffs carrier representative typically uses the rate that is easiest to find and usually is 10% higher than the lowest applicable legal rate traffic manager must search many tariffs to find the lowest rate
Freight Classification
relate to the handling characteristics of freight such classifications are taken as given in contract negotiations between shippers and carriers rate classification regulatory boards are made up of carrier representatives traffic managers appear before the boards to have the classification lowered combat the carriers’ attempts to increase classification numbers
Example
Flashlights in boxes, without batteries are designated LTL class 100 or TL class 55 with a minimum weight of 20,000 pounds Flashlights with their normal complement of batteries are considered LTL class 70 or truckload class 45 with a minimum weight of 24,000 pounds
classification committee felt that flashlights without batteries were too light a truck with them would cube out full but have unused weight capacity Hence, they proposed classification of 150 LTL and 100TL, increase of 50 and 82 percent, respectively
Rate and Service Negotiations
contract carrier rate and service negotiations are bought to the table of negotiation examples given in Pg 2 to 3
Rate and Service Negotiations The examples: illustrate the various aspects of service that can negotiate shippers are willing to pay for improved quality of railroad service the burden of meeting the shipper’s obligations and monitoring the carrier’s performance rests on the shipper’s traffic manager another service is for the carrier to assign one or more vehicles to the exclusive use of the shipper for a specified time e.g. a retail store may contract with one or more truckers to help with holiday deliveries
Items include for Negotiations
contract duration contract termination renegotiations and reopening of contract transportation service level carrier insurance lead times waiver of terms detention time articles and commodities covered how loss and damage claims are handled schedule of rates and charges estimated traffic volume billing procedures carrier equipment and drivers carrier notification requirements confidential contract Arbitration audit rights pallet loading proof of delivery adjustments to rates, and basis for charges
Rate and Service Negotiations
another agreement must negotiate and administer is an average weight agreement involves
agreements as to weights of various items shipped repetitively
so that each individual shipment does not have to be weighed.
5.3 Carrier Selection
Carrier Selection
Select the mode and the specific carrier are the fundamental activities of the traffic department decision may not be exclusively determined by the traffic manager decision to use more expensive forms of transportation (airfreight) is by senior management initial decisions to locate facilities may based on modal choice e.g. site for a warehouse is the point where it was most cost-effective to have shipments go in by rail and out by truck
Carrier Selection
traffic managers made use of modal and multi-modal alternatives in transporting goods an increase use of bids and negotiated rates to select carriers traffic managers judge quality of service using ten most important factors door-to-door rates or costs freight loss and damage experience claims-processing experience transit time reliability experience with carrier in negotiating rate changes shipment tracing door-to-door transit time quality of pickup and delivery service availability of single-line service equipment availability
Other factors
in-transit privileges diversion/reconsignment
will also influenced the decision In fact, service provided by the carrier is more important than cost in selecting a carrier
Weights give to Carrier Service Factors
Carrier’s area of geographic coverage, 0.5 Carrier’s marketing efforts, 0.4 Carrier’s transit performance, 1.8 Equipment availability and cleanliness, 1.1 Customer service, 1.4 Pricing, 1.4 Billing accuracy and timeliness, 1.2 Loss and damage claims handling, 1.2 Carrier financial stability, 1.0
5.4 Private Transportation
Private Transportation
traffic managers frustrated with inconsistent service forced into private trucking most firms also run a few small trucks and vans around plants or to and from the post office and airport growth of private trucking is related to a number of factors improved level of customer service advertising of products traffic manager uses both private carriage and contract carriage has a good working knowledge of the operating costs in better position to evaluate the merits of carrier rate proposals
Petroleum companies like to have deliveries to filling stations made in tank trucks carrying their brand name, rather than having the station’s tanks filled from an unmarked truck
Private Transportation
private trucking less expensive than motor common carriers typically when the private trucking operation is able to achieve full loads in both directions e.g. a trailer can be designed to carry new autos in one direction and general freight in the other private fleet managers use broker to ensure a backhaul load of products decision for private trucking operation should be carefully researched and analyzed well in advance one factor commonly ignored is the requirement that the operations be managed by a professional, who is not the traffic manager
5.5 Documentation
Documentation
traffic department is responsible for completing all of the documents to transport the products many carriers provide software for shipper to generate all of the commonly used documents shippers also have their order-processing software, capable of generating documents The most important single transportation document is the bill of lading BOL functions as a delivery receipt when products are tendered to carriers the signed original of the bill of lading is the shipper’s legal proof that the carrier received the freight
Documentation
Another basic document is the freight bill it is an invoice, submitted by the carrier, requesting to be paid traffic manager must approve each bill before it is paid
5.6 Freight Payment and Audit Services
Freight Payment and Audit Services
Shipper-carrier contracts specify how early bills must be paid to meet these time limits, traffic managers authorize some bill-paying organizations, to pay the carriers once initiated, the carriers submit their freight bills directly to the service the payment service treats the freight bills as checks drawn on the shipper’s freight account and then pays the carriers
Freight Payment and Audit Services These payment plans are growing because shippers appreciate the convenience of the payment service carriers support the concept because of the speed provides summaries of the traffic activity that are useful to shippers when planning for consolidation offer bill-auditing service some have the tariffs loaded into their computer database and pre-audit the bill prior to paying it some shippers audit their freight bills by internal and external auditors audits are designed to detect current errors that result in overcharges and to correct these errors in the future
5.7 Routing
Routing
shippers have the right to select the route to their destination other routing concerns
with respect to hazardous materials movement
firms with excess inventory deliberately choose slow routing, using the carrier as a temporary warehouse traffic manager must plan for contingencies and have alternative routes, and sometimes, carriers As a strategy, traffic manager sometimes gives a small amount of regular business to different modes or carriers for insurance purposes
5.8 Diversion and Reconsignment
Diversion and Reconsignment
Diversion: shipper notifies the carrier, prior arrival in the destination, a change in destination Reconsignment: occurs after the car has arrived in the destination commonly used in conjunction with order bill of lading traffic managersperform the diversion and reconsignment functions quite regularly for perishable goods
5.9 Tracing and Expediting
Tracing
tracing is to locate lost or late shipments traffic department may contact the carrier ask the carrier to trace the shipment a no-cost service offered by common carriers tracing should be requested only when a shipment is unreasonably late many carriers that monitor the progress of freight movements throughout their systems this enables almost instantaneous tracing by the carrier
Expediting
no-cost service of common carriers involves notifying the carrier in advance of the need to expedite or rapidly move the shipment carrier makes every effort to ensure that the shipment is delivered to destination with maximum speed carrier must have sufficient lead-time to alert its employees regarding the shipment to be expedited for railroads, alerting the yardmaster so that the expedited car can be singled out when it arrives and switched to the proper outbound train motor carriers notify the operations manager of terminal that the product will be flowing through and placed on the next outbound vehicle
5.10 Loss and Damage
Loss and Damage traffic managers are involved settling claims with the carriers concerning cargo loss and damage difficult to determine the exact dollar amount of the damage a key factor in determining the value of the full actual loss is the word earned assume that retailer owned the products that damaged beyond repair 1. if the products destroyed were going into a general inventory replacement stock retailer would recover the wholesale price plus freight costs
2. if the product is ordered especially for a customer claim based on the retail price because the profit would have been earned if the carrier had properly performed its service
Loss and Damage
Another difficult area involves concealed loss or damage more difficult to handle because the exterior package does not appear to be damaged or tampered with carriers are reluctant to pay because 1. strong possibility that the product was improperly protected on the inside 2. possibility that the consignee’s employees broke or stole the products
Loss and Damage
traffic mgrs and carriers work together to reduce freight claims these benefits them both a policy issue is the salvage rights to the damaged goods the carrier, or the carrier’s insurer, takes possession of the damaged goods after paying the freight claim disadvantages to the shipper 1. if the damaged goods can be sold, compete in the marketplace with the shipper’s own product 2. if a consumer buys a salvaged product that is defective, they will go after the original manufacturer of the product
5.11 Reparations
Reparations
payments made to a shipper by a carrier that has charged illegally high rates in the past traffic manager must be assertive to protect the interests of his or her company even if it involves alienating carriers
5.12 Demurrage and Detention
Demurrage and Detention
Demurrage is a penalty paid for keeping a rail car beyond the time when it should be released back to the carrier Detention is same for the trucking industry carriers’ concern: equipment will be used as temporary warehouses by either shippers or consignees handling demurrage and detention are important responsibilities for traffic managers traffic managers who are large users of railcars, enter into averaging agreements with the railroads in this system, a credit is received every time the shipper or consignee releases a railcar one day early, and a debit is recorded each time a car is surrendered to a carrier one day late
5.13 Transportation of Hazardous Materials
Transportation of Hazardous Materials
traffic manager must see the materials are moved safety there are legal requirements pertaining to the training of personnel to handle the materials the packaging of the product the marking and labeling of the packages the placarding of the vehicles that transport the materials the information required on shipping documents only certain routes may be used to move the cargo colour, symbols, and numbers of the placards seen on truck trailers, containers, and railcars identify the hazardous properties of the products being carried
5.14 Consolidating Small Shipments
Consolidating Small Shipments
Shipments < 500 pounds, handled relatively fast and inexpensively by Postal system or UPS it cost less on a per-pound basis to ship a larger quantity traffic manager is trying to consolidate large numbers of small shipments into small number of large shipments Figure 5-1 all consolidation involve the aggregation of customer orders across time or place or both Aggregation across time
shipper holds orders or delays purchases to consolidate shipments rather than ship each order immediately
Aggregation across place
the consolidation of shipments to different destinations within the general area
Small shipments are problems for two reasons
trucking companies are reluctant to accept certain small shipments because of their physical characteristics
often light in weight and called balloon traffic e.g. toys and furniture
common carriers are reluctant to accept small shipments, often feel that they lose money on “low volume” customers
Small shipments are problems for two reasons traffic manager must be innovative to compensate for the high cost and poor service given to small shipments by the following approaches: 1. Use interfirm consolidation, or shipper cooperatives. 2. Use intrafirm consolidation, i.e., the traffic manager seeks ways to consolidate shipments within his or her own firm.
Consolidation
For intrafirm consolidation study of the firm’s past shipments to locate consolidation possibilities use of either make-bulk or break-bulk distribution centres products move rapidly through these facilities A consolidation, or make-bulk, centre (Figure 5-2) A break-bulk operation, similar to putting our waste materials into a three-compartment recycling container staff separates the goods into different containers are performing a break-bulk operation shipping company will perform a make-bulk operation by consolidating the containers from the individual firm and ship the goods to other countries
Consolidation
Shippers must study the rate structures of UPS to determine at which point it is least expensive to tender the shipments to the parcel carrier computer programs that make consolidation easier are now available these programs consider store time commitments order sizes equipment constraints, and road speeds and distances there is also an order-splitting and consolidation feature that can be set to deal with >TL splits to prevent overflows and
5.1 Background and Scope of Traffic Management
Background and Scope of Traffic Management
senior management concerned about traffic management because transportation is a major expense item traffic manager is an important member of management team traffic department plays a major role in accomplishing physical movement flows traffic management is essential to the attainment of logistics and firm objectives technical knowledge and specialization are required in the traffic management area
Traffic Management Department
responsible for planning, operating, controlling of transportation & related services for inbound and outbound movements assists in arranging for the transportation of goods to the customer must be mindful of the interrelationships among transportation decisions and packaging, customer service, warehousing, materials handling, and inventory decisions
Traffic Managers
assist marketing by quoting freight rates for salespeople suggesting quantity discounts selecting carriers and routes for delivery of products assist manufacturing by advising on packaging and materials handling making adequate supply of transportation when needed assist outbound shipping process by providing simplified shipping or routing guides drawing up transportation documents encouraging shipment consolidations assist purchasing by advising the costs and quality of inbound deliveries tracing and expediting lost or delayed shipments
5.2 Rate Determination and Negotiation Activities
Rate Determination and Negotiation Activities The categories for rate-associated duties are: published rate determination working with carrier classification regulatory board to publish new, usually lower classifications negotiating with a specific carrier for a contract rate to carry most of the shipper’s business. The categories are interrelated because they may all involve rates for the same shipment, and whichever category results in the lowest rate is the one utilized
Rate Determination
important to every traffic manager carrier has a legal obligation to determine the correct rate this is extremely complex and have a broad range of interpretations many applicable rates can be found from tariffs carrier representative typically uses the rate that is easiest to find and usually is 10% higher than the lowest applicable legal rate traffic manager must search many tariffs to find the lowest rate
Freight Classification
relate to the handling characteristics of freight such classifications are taken as given in contract negotiations between shippers and carriers rate classification regulatory boards are made up of carrier representatives traffic managers appear before the boards to have the classification lowered combat the carriers’ attempts to increase classification numbers
Example
Flashlights in boxes, without batteries are designated LTL class 100 or TL class 55 with a minimum weight of 20,000 pounds Flashlights with their normal complement of batteries are considered LTL class 70 or truckload class 45 with a minimum weight of 24,000 pounds
classification committee felt that flashlights without batteries were too light a truck with them would cube out full but have unused weight capacity Hence, they proposed classification of 150 LTL and 100TL, increase of 50 and 82 percent, respectively
Rate and Service Negotiations
contract carrier rate and service negotiations are bought to the table of negotiation examples given in Pg 2 to 3
Rate and Service Negotiations The examples: illustrate the various aspects of service that can negotiate shippers are willing to pay for improved quality of railroad service the burden of meeting the shipper’s obligations and monitoring the carrier’s performance rests on the shipper’s traffic manager another service is for the carrier to assign one or more vehicles to the exclusive use of the shipper for a specified time e.g. a retail store may contract with one or more truckers to help with holiday deliveries
Items include for Negotiations
contract duration contract termination renegotiations and reopening of contract transportation service level carrier insurance lead times waiver of terms detention time articles and commodities covered how loss and damage claims are handled schedule of rates and charges estimated traffic volume billing procedures carrier equipment and drivers carrier notification requirements confidential contract Arbitration audit rights pallet loading proof of delivery adjustments to rates, and basis for charges
Rate and Service Negotiations
another agreement must negotiate and administer is an average weight agreement involves
agreements as to weights of various items shipped repetitively
so that each individual shipment does not have to be weighed.
5.3 Carrier Selection
Carrier Selection
Select the mode and the specific carrier are the fundamental activities of the traffic department decision may not be exclusively determined by the traffic manager decision to use more expensive forms of transportation (airfreight) is by senior management initial decisions to locate facilities may based on modal choice e.g. site for a warehouse is the point where it was most cost-effective to have shipments go in by rail and out by truck
Carrier Selection
traffic managers made use of modal and multi-modal alternatives in transporting goods an increase use of bids and negotiated rates to select carriers traffic managers judge quality of service using ten most important factors door-to-door rates or costs freight loss and damage experience claims-processing experience transit time reliability experience with carrier in negotiating rate changes shipment tracing door-to-door transit time quality of pickup and delivery service availability of single-line service equipment availability
Other factors
in-transit privileges diversion/reconsignment
will also influenced the decision In fact, service provided by the carrier is more important than cost in selecting a carrier
Weights give to Carrier Service Factors
Carrier’s area of geographic coverage, 0.5 Carrier’s marketing efforts, 0.4 Carrier’s transit performance, 1.8 Equipment availability and cleanliness, 1.1 Customer service, 1.4 Pricing, 1.4 Billing accuracy and timeliness, 1.2 Loss and damage claims handling, 1.2 Carrier financial stability, 1.0
5.4 Private Transportation
Private Transportation
traffic managers frustrated with inconsistent service forced into private trucking most firms also run a few small trucks and vans around plants or to and from the post office and airport growth of private trucking is related to a number of factors improved level of customer service advertising of products traffic manager uses both private carriage and contract carriage has a good working knowledge of the operating costs in better position to evaluate the merits of carrier rate proposals
Petroleum companies like to have deliveries to filling stations made in tank trucks carrying their brand name, rather than having the station’s tanks filled from an unmarked truck
Private Transportation
private trucking less expensive than motor common carriers typically when the private trucking operation is able to achieve full loads in both directions e.g. a trailer can be designed to carry new autos in one direction and general freight in the other private fleet managers use broker to ensure a backhaul load of products decision for private trucking operation should be carefully researched and analyzed well in advance one factor commonly ignored is the requirement that the operations be managed by a professional, who is not the traffic manager
5.5 Documentation
Documentation
traffic department is responsible for completing all of the documents to transport the products many carriers provide software for shipper to generate all of the commonly used documents shippers also have their order-processing software, capable of generating documents The most important single transportation document is the bill of lading BOL functions as a delivery receipt when products are tendered to carriers the signed original of the bill of lading is the shipper’s legal proof that the carrier received the freight
Documentation
Another basic document is the freight bill it is an invoice, submitted by the carrier, requesting to be paid traffic manager must approve each bill before it is paid
5.6 Freight Payment and Audit Services
Freight Payment and Audit Services
Shipper-carrier contracts specify how early bills must be paid to meet these time limits, traffic managers authorize some bill-paying organizations, to pay the carriers once initiated, the carriers submit their freight bills directly to the service the payment service treats the freight bills as checks drawn on the shipper’s freight account and then pays the carriers
Freight Payment and Audit Services These payment plans are growing because shippers appreciate the convenience of the payment service carriers support the concept because of the speed provides summaries of the traffic activity that are useful to shippers when planning for consolidation offer bill-auditing service some have the tariffs loaded into their computer database and pre-audit the bill prior to paying it some shippers audit their freight bills by internal and external auditors audits are designed to detect current errors that result in overcharges and to correct these errors in the future
5.7 Routing
Routing
shippers have the right to select the route to their destination other routing concerns
with respect to hazardous materials movement
firms with excess inventory deliberately choose slow routing, using the carrier as a temporary warehouse traffic manager must plan for contingencies and have alternative routes, and sometimes, carriers As a strategy, traffic manager sometimes gives a small amount of regular business to different modes or carriers for insurance purposes
5.8 Diversion and Reconsignment
Diversion and Reconsignment
Diversion: shipper notifies the carrier, prior arrival in the destination, a change in destination Reconsignment: occurs after the car has arrived in the destination commonly used in conjunction with order bill of lading traffic managersperform the diversion and reconsignment functions quite regularly for perishable goods
5.9 Tracing and Expediting
Tracing
tracing is to locate lost or late shipments traffic department may contact the carrier ask the carrier to trace the shipment a no-cost service offered by common carriers tracing should be requested only when a shipment is unreasonably late many carriers that monitor the progress of freight movements throughout their systems this enables almost instantaneous tracing by the carrier
Expediting
no-cost service of common carriers involves notifying the carrier in advance of the need to expedite or rapidly move the shipment carrier makes every effort to ensure that the shipment is delivered to destination with maximum speed carrier must have sufficient lead-time to alert its employees regarding the shipment to be expedited for railroads, alerting the yardmaster so that the expedited car can be singled out when it arrives and switched to the proper outbound train motor carriers notify the operations manager of terminal that the product will be flowing through and placed on the next outbound vehicle
5.10 Loss and Damage
Loss and Damage traffic managers are involved settling claims with the carriers concerning cargo loss and damage difficult to determine the exact dollar amount of the damage a key factor in determining the value of the full actual loss is the word earned assume that retailer owned the products that damaged beyond repair 1. if the products destroyed were going into a general inventory replacement stock retailer would recover the wholesale price plus freight costs
2. if the product is ordered especially for a customer claim based on the retail price because the profit would have been earned if the carrier had properly performed its service
Loss and Damage
Another difficult area involves concealed loss or damage more difficult to handle because the exterior package does not appear to be damaged or tampered with carriers are reluctant to pay because 1. strong possibility that the product was improperly protected on the inside 2. possibility that the consignee’s employees broke or stole the products
Loss and Damage
traffic mgrs and carriers work together to reduce freight claims these benefits them both a policy issue is the salvage rights to the damaged goods the carrier, or the carrier’s insurer, takes possession of the damaged goods after paying the freight claim disadvantages to the shipper 1. if the damaged goods can be sold, compete in the marketplace with the shipper’s own product 2. if a consumer buys a salvaged product that is defective, they will go after the original manufacturer of the product
5.11 Reparations
Reparations
payments made to a shipper by a carrier that has charged illegally high rates in the past traffic manager must be assertive to protect the interests of his or her company even if it involves alienating carriers
5.12 Demurrage and Detention
Demurrage and Detention
Demurrage is a penalty paid for keeping a rail car beyond the time when it should be released back to the carrier Detention is same for the trucking industry carriers’ concern: equipment will be used as temporary warehouses by either shippers or consignees handling demurrage and detention are important responsibilities for traffic managers traffic managers who are large users of railcars, enter into averaging agreements with the railroads in this system, a credit is received every time the shipper or consignee releases a railcar one day early, and a debit is recorded each time a car is surrendered to a carrier one day late
5.13 Transportation of Hazardous Materials
Transportation of Hazardous Materials
traffic manager must see the materials are moved safety there are legal requirements pertaining to the training of personnel to handle the materials the packaging of the product the marking and labeling of the packages the placarding of the vehicles that transport the materials the information required on shipping documents only certain routes may be used to move the cargo colour, symbols, and numbers of the placards seen on truck trailers, containers, and railcars identify the hazardous properties of the products being carried
5.14 Consolidating Small Shipments
Consolidating Small Shipments
Shipments < 500 pounds, handled relatively fast and inexpensively by Postal system or UPS it cost less on a per-pound basis to ship a larger quantity traffic manager is trying to consolidate large numbers of small shipments into small number of large shipments Figure 5-1 all consolidation involve the aggregation of customer orders across time or place or both Aggregation across time
shipper holds orders or delays purchases to consolidate shipments rather than ship each order immediately
Aggregation across place
the consolidation of shipments to different destinations within the general area
Small shipments are problems for two reasons
trucking companies are reluctant to accept certain small shipments because of their physical characteristics
often light in weight and called balloon traffic e.g. toys and furniture
common carriers are reluctant to accept small shipments, often feel that they lose money on “low volume” customers
Small shipments are problems for two reasons traffic manager must be innovative to compensate for the high cost and poor service given to small shipments by the following approaches: 1. Use interfirm consolidation, or shipper cooperatives. 2. Use intrafirm consolidation, i.e., the traffic manager seeks ways to consolidate shipments within his or her own firm.
Consolidation
For intrafirm consolidation study of the firm’s past shipments to locate consolidation possibilities use of either make-bulk or break-bulk distribution centres products move rapidly through these facilities A consolidation, or make-bulk, centre (Figure 5-2) A break-bulk operation, similar to putting our waste materials into a three-compartment recycling container staff separates the goods into different containers are performing a break-bulk operation shipping company will perform a make-bulk operation by consolidating the containers from the individual firm and ship the goods to other countries
Consolidation
Shippers must study the rate structures of UPS to determine at which point it is least expensive to tender the shipments to the parcel carrier computer programs that make consolidation easier are now available these programs consider store time commitments order sizes equipment constraints, and road speeds and distances there is also an order-splitting and consolidation feature that can be set to deal with >TL splits to prevent overflows and
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